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India cuts gold import tariff

In its budget for 2003/04, the Indian government said that it would cut by 60 per cent customs duty on imported gold to Rs100 per 10 grams from 250 rupees.

Yesterday, spot gold was trading at US$346-347 an ounce, well above the US$255-US$290 range of 2000-2001. Jewellery manufacturers see US$320 a good level of price affordability, brokers said.

"This is a big change. This is the lowest that the duty has ever been," said a Hong Kong-based executive with an international bullion house. "It basically demonstrates confidence in the economy. It means that the country is going closer toward capital convertibility because gold can be substituted for actual currency," the executive said. Under a decade-long policy of liberalising foreign currency laws, the Indian rupee has moved from a currency restricted by exchange controls to one that is fully convertible on the current account and partially convertible on the capital account. Capital account convertibility is defined as the freedom to convert local financial assets into foreign assets and vice-versa at rates determined by the market.

Gold, which is priced in US dollars and according to market forces, is considered a quasi-currency and many governments have feared that duty-free trade in gold would drain reserves. The government's confidence at this time also comes from the fact that its foreign reserves total US$75 billion, the highest level ever, the executive added. Indian gold offtake was a total of 797 tonnes in 2002, down 5.5 per cent from a year earlier, the World Gold Council said.